Cyprus Commits to Russian Talks as Sarris Seeks Rescue

By Scott Rose and Olga Tanas -
Mar 20, 2013

Cypriot Finance Minister Michael Sarris pledged to continue talks with Russian officials “as
long as it takes” as the island nation seeks to overcome a
deadlock after rejecting an unprecedented levy on bank deposits.

“We had a very good first meeting, very constructive, very
honest discussion,” Sarris told reporters today in Moscow after
meeting his Russian counterpart, Anton Siluanov. Sarris later
held talks lasting about an hour and a half with Russian First
Deputy Prime Minister Igor Shuvalov, who was accompanied by
Siluanov and Deputy Finance Minister Sergei Storchak, Shuvalov’s
spokesman, Alexander Machevsky, said by phone.

Russia, which granted Cyprus a 2.5 billion-euro ($3.2
billion) loan in December 2011, had been in talks on easing the
terms before being left out of a European Union-led bailout that
would see a levy imposed on depositors. President Vladimir Putin
called the deal “unfair” and “dangerous” before the
Mediterranean nation voted down the proposal yesterday.

European countries including Germany have demanded that
Russia contribute to any new rescue package to Cyprus. German
Finance Minister Wolfgang Schaeuble in January urged an
investigation into whether Russia is using the island as a
destination for money laundering. Cypriot officials deny the
country is a haven for illegal money.

‘Things Beyond’

Today’s talks included “things beyond that,” Sarris said
when asked about extending the terms of the 2.5 billion-euro
loan from Russia or new credit. Meetings in Moscow have so far
yielded no result, with discussions set to continue today and
tomorrow, state-run RIA Novosti reported, citing an unidentified
official.

The euro strengthened from a four-month low against the
dollar on speculation the European Central Bank’s pledge to
provide liquidity to Cyprus will give it time to renegotiate a
financial rescue package. The common currency advanced 0.3
percent to $1.2918 at 7:19 a.m. New York time after sliding to
$1.2844 yesterday, the weakest level since Nov. 22.

The 17-nation currency gained for the first time in eight
days versus the Swiss franc as the ECB yesterday reaffirmed its
commitment to offer funding to Cyprus “within the existing
rules.”

Russia stands to gain more than it may lose in the medium-
term from Europe’s decision to impose the levy, Shuvalov told
reporters late yesterday. The country’s banking industry may
receive an inflow of capital as investors leave Cyprus, he
added.

‘Clear Signal’

“I take what’s happening now as a clear signal that
there’s something to compare against when we’re being criticized
for a bad investment climate,” Shuvalov said. “We have
something to point to. When things were bad for us, we never
dared to do anything like this.”

The bank levy plan amounts to a “confiscation” and if
implemented, Cyprus would be heading down “Trotsky’s path,”
billionaire Mikhail Prokhorov, whose assets include the Moscow-
based Renaissance Capital investment bank, said in an opinion
piece in the Vedomosti newspaper.

The investment bank’s brokerage and securities custody
accounts of its Cyprus-based subsidiary are “entirely
unaffected” by the proposed levy, the lender said in an e-
mailed statement March 18. The bank itself has “no material
balances” in Cyprus banks, Renaissance said.

‘Insignificant’ Loss

VTB Group may have an “insignificant” loss in Cyprus,
First Deputy Chief Executive Officer Vasily Titov told reporters
in Moscow today.

“We are concerned about the situation, but we feel
confident,” he said.

Officials from the state-run bank, including CEO Andrey Kostin, are planning to participate in talks with Cypriot
officials, Titov said.

Sarris, who arrived in Moscow last night, is being
accompanied on the visit by Commerce and Industry Minister
George Lakkotrypis, RIA Novosti reported yesterday, citing an
unidentified EU official.